Dairy Talk

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

February MILC payments to start flowing April 1

Mar 16, 2009

If you’re checking your bank account every few days to see if your February Milk Income Loss Contract (MILC) payment has been deposited by USDA, don’t bother until April 1.

USDA must wait to calculate the feed-cost-adjusted-payment rate until the March Agricultural Prices Publication is released on March 30. Once the agency has those official prices, its economists can plug in the corn, alfalfa and soybean prices to get the adjustor. Then, it’s just a matter of forwarding that rate on to payment routers and get the money to you, says Danny Cook, special program manager for USDA’s Farm Service Agency. (That’s also assuming that you, your creamery or your co-op has forwarded your February milk production final total to USDA.)

The funny thing is, February all-feed prices were already posted on February 27: $4.13/bu for corn, $143/ton for alfalfa and $9.58/bu for soybeans. If those prices remain as official, then the ration cost for 16% protein dairy feed will come in at $7.97/cwt, or 8.44% above the baseline ration cost of $7.35/cwt set by the 2008 Farm Bill. To see the feed cost adjustor calculator, follow this link.

That means the new MILC target price becomes $17.58, compared to $16.94 without the feed adjustor. And that should push the February MILC payment to $1.62/cwt, up 28¢/cwt from where it would have been without the feed cost adjustor.

Since we already know what the Class I price in Boston is for March, $12.68, we also know that the March MILC payment will be at least $1.92/cwt. (16.94 - $12.68 X 45%.) It likely will climb above $2 since USDA’s dairy ration costs aren’t likely to drop much in the next couple of weeks. But again, that money won’t be getting anywhere near your check book until May.

Will either of these payments make a difference? If you were milking 100 cows in February and they each put 65 lb/day in the bulk tank, your February MILC payment will be about $2,950. In March, if the MILC payment jumps to $2.10, the payment for those same 100 cows could jump to $4,230.

Neither amount will make you rich. But it’s not chump change either. If your cost of production is $15/cwt, the February MILC represents 11% of that amount. In March, it would jump to 14%.

For large producers, of course, those payments will run out quickly. A 1,500-cow herd could eat up its entire 2.98 million lb. of MILC eligibility in the first month. A 750-cow herd has a two-month window of payments, and so on.

But large herds shouldn’t grouse too much. Since MILC payments are likely to be at their highest in February and March, large herds will have their payments based on these higher rates. So they could end up pocketing something like $45,000 in total MILC payments over the first month or two.

Smaller herds will have their payments spread out over more months with potentially declining MILC payment rates. As such, their total take will likely be less—simply because of those declining rates. That’s the luck of the draw.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.